The Securing a Strong Retirement Act (SSRA)—a.k.a. SECURE 2.0—is wending its way through Capitol Hill. The measure contains a wide range of provisions that would affect retirement saving, plans and participants. A recent Plan Sponsor Council of America (PSCA) webinar zeroed in on some key provisions.
The panel in “SECURE 2.0 Plan Sponsor & Participant Takeaways” included American Retirement Association Government Affairs Officer and PSCA Executive Director Will Hansen; Ira Finn, Vice President, Compensation and Benefits, Ryan Specialty Group, LLC and PSCA President; and Stephen W. McCaffrey, Senior Counsel, National Grid USA Service Co., Inc., and PSCA GAC Chair.
The SECURE 2.0 bill was sponsored by House Ways & Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) and has 45 individual provisions under six titles: coverage, lifetime income, simplification, SECURE 1.0 technical amendments, plan amendment window and revenue provisions.
Required Minimum Distributions
Provisions that would affect RMDs include those that would set new beginning dates for RMDs at age 73 beginning in 2027 and age 75 beginning in 2033 and a reduction in excise tax penalties for RMD failures. The panel pointed out that the changes SECURE 2.0 would make concerning RMDs would result in funds staying in the plan for a longer period and could even lower fees.
Catch Up Contributions
SECURE 2.0 would increase the catch-up contribution limit to $10,000, and $5,000 for SIMPLE IRA. It also would establish, for taxable years beginning in 2023, that 62, 63 and 64 would be that ages at which individuals would be eligible to make catch-up contributions. Hansen called the provision “interesting” and said that it was “overall, a positive change,” but noted that “there could be communication struggles with eligible individuals.” McCaffrey was similarly positive, commenting that “The whole intent of this and SECURE is to give a more secure retirement.”
Student Loan Matching Program
Under SECURE 2.0, an employer could contribute a certain percentage of an employee’s student loan repayment into the employee’s retirement account. Finn remarked that “This will be received positively” but added that he “still has a lot question marks.”
Long-Term Part-Time Employees
SECURE 2.0 would amend SECURE 1.0 to reduce the time period from three years of 500 hours or more to two years of 500 hours or more; in addition, prior service for vesting would not apply (applicable if the employer provides contributions, which isn’t required for this group. McCaffrey remarked that they anticipate that “a lot more people will be interested.” Hansen commented that there are many protections built in for individuals.
Recovery of Retirement Plan Overpayments
SECURE 2.0 would prohibit plan sponsors from recovering overpayments after a three-year period unless the individual is at fault for overpayment; Hansen remarked that this limitation would really apply if the company is at fault. The bill also would impose restrictions to protect participants and beneficiaries, and would allow periodic/installment payments imposed before the date of enactment to continue. These provisions will make it more difficult to recover repayments, McCaffrey said.
Eliminate Disclosure Requirements
The bill contains a provision saying that for unenrolled participants, a plan sponsor only needs to provide an annual reminder of eligibility to participate and any other required document the participant requests. Hansen said that this would make it easier for plan sponsors to reduce disclosures made to unenrolled participants and would reduce communication costs. Finn, for his part, focused on the definition of “unenrolled” in order to better monitor activity of the vendor.
Retirement Savings Lost and Found
Under SECURE 2.0, the Pension Benefit Guaranty Corporation (PBGC) would be required to update its existing online database of lost accounts to include the unclaimed accounts of $6,000 or less of all former employees. It also provides that employers would be allowed to transfer to the PBGC the retirement accounts of former employees with a balance of less than $1,000, to be invested in U.S. Treasury securities. Finn called the changes “beneficial,” but added that they “will add a level of complexity.” Further, he said, plan sponsors will need additional education on this matter.
EPCRS Self-Correction Program
SECURE 2.0 touches on the IRS Employee Plans Compliance Resolution System (EPCRS) Self-Correction Program. It would allow eligible inadvertent compliance failures to be self-corrected, and would allow plan loan errors to be self-corrected under both EPCRS and Department of Labor’s Voluntary Fiduciary Correction Program (VFCP). “Hopefully, these are positive steps,” said Hansen. McCaffrey and Finn expressed the view that they are; McCaffrey added that he thinks these provisions are “going to be very helpful” and will provide a lot more leverage about not having to report to the IRS.
Paper Statement Mandate
SECURE 2.0 would require at least one quarterly benefit statement to be delivered on paper. It would default to this option; however, a participant would be able to elect to receive benefit statements electronically. It also states that DB plans would have to provide the once-every-three-years statement in paper form, unless the participant elects otherwise. This is an “added layer” to other disclosure rules, Hansen said. Finn was definitive, saying that the provision is “definitely a step backward.”
The bill would allow employee self-certification for hardship distributions. Hansen remarked that this provision is taking the concept of COVID-related hardships and extending it to all hardship distributions.
Qualified Birth or Adoption Distribution
Under SECURE 2.0, repayment of qualified birth or adoption distributions would be limited to three years. It also would impose a three-year limitation on recontributions. McCaffrey expressed a positive view of this provision; Finn said they are considering adopting the policy, and are wondering what other companies are doing.
The House Ways & Means Committee approved the measure by voice vote on May 5. So what now? Hansen remarked that what happens to the legislation “comes down to what the priorities are,” adding that “It comes down to finding floor time.”